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Will Merger Of Banks Provide Any Benefit To India’s Economy





The season of bank mergers is going on and looking at the trend; this term surely fits the bill. The finance ministry of India is on a bank merger spree. It is amalgamating several small and mid-size banks into one major bank. According to this plan, the number of public sector banks that were 27 in numbers will be reduced to 12 after the merger process is complete. The current plan includes four major mergers of banks of the public sector undertaking.

The Oriental Bank of Commerce (OBC) and the United Bank of India (UBI) will be merged into the Punjab National Bank (PNB). After this move, Punjab National Bank will become the second-largest PSU bank right after the State Bank of India.  In the second amalgamation plan, Syndicate bank will become a part of Canara bank, whereas Andhra Bank and Corporation Bank shall be merged with Union Bank of India.

Allahabad Bank shall be merged with Indian bank which will make it the seventh-largest state-owned bank in India. However, the other six PSU banks such as Bank Of Maharashtra, Punjab And Sind Bank, UCO Bank, Indian Overseas Bank, Bank Of India And Central Bank remains untouched and will continue to function as separate entities.

In explanation of downsizing the number of banks to 12, the finance ministry stated that this step was initiated with the motto of making them global sized banks and this merger will help in consolidating strong national presence and global reach of these banks. The merger of these banks just came a few months after the current NDA government announced the merger of Vijaya Bank and Dena Bank with Bank of Baroda. It was effective from April 1st, 2019.

The amalgamation or merger process is not a new one as earlier five associate banks of State Bank of India were merged into one. It included State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bharatiya Mahila Bank.

The finance ministry states that after completion of this process, it is expected the profitability of the public sector banks shall improve and the total gross non-performing assets (NPA) of the PSU banks will come down. As for government and RBI, it will be easy to maintain and track the performance of these twelve banks rather than keeping an eye on every small bank that was scattered earlier. It will also merge the liquid asset of each bank, and the combination of it will give strength to the fiscal reserve of each bank. The move is also seen as a move to cope with the ongoing economic slump of the country and to accumulate the liquid strength in one institution rather than dividing them in several.

The customers of these banks will also experience the changes of these implications, but there is no need to panic about it. There will be no significant changes for the account holders of the bank immediately. But after some time you need to check with the integration system as your account number may be subject to change along with IFSC number and branch code. There might be a need of doing a KYC again after the merger process is complete as the mother bank will need complete data of customers of the bank which as merged into it. Therefore, you need to ensure that your current mobile number and email ID is up to date on the bank’s system. The shifts caused by these mergers anticipate better money management and restriction of bank frauds. As the database remains accumulated in one place, managing the function of the banks becomes much easier.     

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